Statement by the Chairman of the Board and the Chief Executive Officer

Dear shareholders,

Ladies and gentlemen,

There was hardly a cloud on the economic horizon in 2017. Robust economic growth in the euro zone helped guide the global economy into calmer waters. Financial market sentiment was therefore very positive. The Swiss franc’s devaluation provided a boost to the country’s economic exports.

In this environment, VP Bank was able to meet its organic growth targets at all Group locations in 2017. The broad base of net new money demonstrates the relevance of our growth strategy. The strategic and operating measures implemented during the year also had a positive impact on net income.

Satisfactory net income

In 2017 VP Bank Group recorded consolidated net income of CHF 65.8 million, up 13.4 per cent from CHF 58.0 million the previous year.

Operating income rose by 9.8 per cent from CHF 273.2 million to CHF 300.1 million.

Operating expense increased by 8.3 per cent to CHF 229.8 million.

Client assets under management increased by 13.0 per cent from CHF 35.8 billion to CHF 40.4 billion. In 2017 VP Bank Group recorded net inflow of new client money totalling CHF 1,894 million, a marked improvement over the organic growth in net new money in 2016. This improve­- ment resulted from our intensive market development efforts, inflows from existing clients and the recruitment of new client advisors.

At 31 December 2017 the Tier 1 ratio was 25.7 per cent (31 December 2016: 27.1 per cent). The cost/income ratio was lowered by a satisfactory 4.2 percentage points to 64.2 per cent.

Dividend increase to be proposed

The Board of Directors proposes that the Annual General Meeting of 27 April 2018 approve a dividend pay-out of CHF 5.50 per registered share A (2016: CHF 4.50) and CHF 0.55 per registered share B (2016 : CHF 0.45). The earnings basis shapes the dividend policy defined by the Board of Directors. VP Bank strives to maintain a constant dividend approach, with a goal of paying out 40 per cent to 60 per cent of consolidated net income to shareholders. The proposed dividend is based on consolidated net income of CHF 65.8 million.

Strategic orientation and positioning

VP Bank’s business model is based on the two strategic pillars of the intermediaries business and private banking. We position ourselves as a trusted partner for a sophisticated private client base and we are a well-established partner for financial intermediaries. In addition, we offer an international fund competency centre. VP Bank’s primary strategic goal is to achieve profitable and qualitative growth in the identified target markets and thereby secure its independence.

In 2015 the board of Directors and Group Executive Management developed the “Strategy 2020” plan. This strategy encompasses the key long-term priorities of growth, focus and culture. It combines a growth strategy, efficiency enhancements and the continued development of our sales and performance culture.

In 2017 we adapted our organisational and management structure to reflect “Strategy 2020” and redefined the functions within Group Executive Management.

As from 1 January 2017, the new organisational unit “General Counsel & Chief Risk Officer” was established at the level of Group Executive Management. Also as from this date, Monika Vicandi, who previously headed up the Group Legal, Compliance & Tax unit, was put in charge of this new “General Counsel & Chief Risk Officer” unit and appointed to VP Bank’s Group Executive Management. Meanwhile, the Group Legal, Compliance & Tax as well as Group Risk units were combined into a single new unit and included in Group Executive Management. This higher-­level management oversight mainly reflects steadily growing market regulations and a corresponding increase in requirements placed on internationally oriented financial services providers.

We also created the “Investment Solutions” organisational unit at the start of 2017. This new unit further strengthens Group-wide investment capabilities. Management recruited Felix Brill to head up Investment Solutions as from 1 March 2018. Felix Brill has a degree in economics and many years of experience in the financial industry. In the interim, Christoph Mauchle, the Head of Client Business and a Member of Group Executive Management, is heading up the Investment Solutions organisational unit.

To ensure the steady roll-out and further development of our Strategy 2020 plan and underscore its importance within the Group, we combined various functions relating to strategic management into a newly created Group Strategy unit as from 1 April 2017. In so doing we are firmly establishing a systematic strategic process and increasingly focusing on the overall development of VP Bank Group.

This most recent performance along with our strong equity position clearly show that we are on the right track.

VP Bank shares and investor relations

VP Bank’s share price trended very favourably again in 2017, rising from CHF 108.00 to CHF 133.00 at year-end, with a peak of CHF 141.90 in October. Thanks to this 27.3 per cent nominal increase (including dividend) in the share price, VP Bank shares again proved to be a solid investment compared to other banks.

The Annual General Meeting approved a resolution to pay a dividend of CHF 4.50 per registered share A and CHF 0.45 per registered share B. The dividends were paid out on 5 May 2017.

Our share buy-back through open market transactions was completed at end-May 2017. On 6 June 2016 VP Bank AG had announced a share buy-back programme for up to 120,000 treasury shares A with a par value of CHF 10 per share. From 7 June 2016 through 31 May 2017, a total of 88,835 registered shares A were repurchased. As of 31 December 2017, VP Bank therefore holds, directly or indirectly, 547,320 registered treasury shares A and 131,662 registered treasury shares B (8.47 per cent of the share capital and 5.65 per cent of the voting rights). The repurchased registered shares A are to be used for future acquisitions or treasury management purposes.

In early March 2017, the rating agency Standard & Poor’s confirmed VP Bank’s outstanding “A–” rating and raised its outlook from stable to positive. In August 2017, Standard & Poor’s again confirmed the “A–“ rating and highlighted VP Bank Group’s strong equity position and related ability to absorb general risks to a significant degree. The confirmed rating and improved outlook also take into account our operating improvement, low credit risk and very strong equity position.

In May 2017, under the motto “New challenges – New business opportunities”, VP Bank invited investors as well as other participants in the worlds of finance, business, politics and the media to the “VP Finance Dialogue 2017” in Luxembourg. Adrian Hasler, Prime Minister of the Principality of Liechtenstein, was the keynote speaker. “VP Bank Finance Dialogue” was the third event of this type and contributed to our goal of promoting an open and on-going dialogue on current events.

Other significant events

VP Bank’s business model is based on the two strategic pillars of the intermediaries business and private banking. In 2017 we successfully expanded our range of services for intermediaries clients; our investments in this area are having the desired effect. In private banking we set new standards for client care through a new advisory concept, various advisory packages with attractive client solutions and the installation of our new advisory software.

At end-2016 we launched our “Relationship Manager Hiring” project in order to achieve our growth targets. As a result, in 2017 we were able to recruit several new client advisors for VP Bank and capture new money inflows.

We also successfully expanded our fund business. Our one-stop-shop model with a comprehensive line of fund services is especially popular. The fund business is a particularly attractive growth segment for VP Bank and nicely complements our products and services.

Last year we made some adjustments to certain items in our brand strategy. This had an impact in several areas. Refinements were made at the content level, the design of VP Bank’s corporate identity was refreshed and the website was completely reconfigured from both a visual and technical standpoint. More information is available in the section “The VP Bank brand” on pages 36 et seq. The look of our new corporate identity can be seen in this annual report.

On 6 September 2017 the British Virgin Islands in the Caribbean were hit hard by Hurricane Irma. Our office in Road Town, Tortola was shut down briefly, but thanks to efficient crisis management we were able to continue operating VP Bank (BVI) Ltd as far as possible. Clients were therefore kept informed continuously and a service hotline and special e-mail address were set up. VP Bank (BVI) Ltd was able to resume normal business operations in Road Town as from 6 November 2017. The Board of Directors and Group Executive Management would like to thank all those who worked during those weeks to support our employees on site and ensure continuing operations.

In September 2017 VP Bank Group conducted a new employee survey. It showed significant improvement in the key assessment criteria areas relative to our 2015 survey, thereby proving that the measures introduced two years ago had the desired effect.

We are proud to have been recognised in the “Fuchsbriefe” rankings. In November 2017 in Berlin, VP Bank was named “Top Provider” for advisory performance. This highly regarded award put VP Bank among the top five banks in the entire German-speaking region and shows that our advisory teams perform at the highest international level.

Beginning in 2018, VP Bank Group will need to implement the enhanced investor protections ushered in by the MiFID II directive at all EU/EEA sites and for our clients with a corresponding domicile. We therefore systematically integrated MiFID II into our business processes and are well prepared to meet the coming requirements. More information on this subject can be found in the section “Investor protection through MiFID II” on page 72.

We take very seriously our duty to perform due diligence as regards tax compliance by our clients. The Automatic Exchange of Information (AEOI) serves as the international standard for information on financial accounts and administrative cooperation in tax matters. This global standard is designed to prevent cross-border tax avoidance. So far more than 100 countries have adopted the standard. Liechtenstein introduced the AEOI in 2016, and in 2017 the first AEOI reports for 2016 were submitted with 61 partner countries, a number that will increase in 2018 to 88 partner countries. Some 90 per cent of VP Bank’s client relations involve AEOI countries. Moreover, in 2017 we reached an agreement with German authorities as regards untaxed assets of German clients.

Personnel changes

At the 54th Annual General Meeting on 28 April 2017, the terms of office for several members of the Board of Directors were up for renewal. Teodoro D. Cocca, Beat Graf and Michael Riesen were re-elected to another round of three-year Board terms. Daniel H. Sigg decided not to seek re-election and stepped down from the Board of Directors. He was first elected to the Board in 2008, served as Chairman of the Risk Committee and was a member of the Audit Committee. The Board of Directors would like to thank Daniel H. Sigg for his considerable contributions to VP Bank and wishes him all the best in the future.

At the Annual General Meeting of 27 April 2018, the Board of Directors will propose the re-election of Fredy Vogt and Dr Florian Marxer as members of the Board of Directors each for a term of three years.

Based on the strategic goals set, the Board of Directors has resolved, in addition, to recommend to the Annual General Meeting of 27 April 2018 that Dr Thomas R. Meier be elected as member of the Board of Directors. He possesses more than three decades of international experience in the financial sector focussing on Asia. With this appointment, the Board of Directors strengthens its own expertise as well as guaranteeing a long-term succession planning.

Chief Operating Officer (COO) Martin C. Beinhoff decided to leave VP Bank at end-June 2017. He was responsible for the Group Credit, Group Operations and Group Information Technology areas. The Board of Directors appointed Urs Monstein as the new COO and member of Group Executive Management. He will join VP Bank on 1 May 2018. Until then, CEO Alfred W. Moeckli and CFO Siegbert Näscher are handling the Information Technology and Operations units on an interim basis. The Group Credit unit was assigned to the CFO organisational unit as from 1 July 2017.

The additions of Felix Brill as Head of Investment Solutions and Urs Monstein as COO mean that VP Bank’s Group Executive Management will again be fully staffed during the course of the first half of 2018.

We also made key changes at our international sites. As from 1 February 2017, Nicholas A. Clark took over the position of Chief Executive Officer of VP Bank (BVI) Ltd. Since 13 March 2017, Bruno Morel is the Chief Executive Officer of VP Bank (Singapore) Ltd. On 1 July 2017, VP Bank (Switzerland) Ltd’s executive management was strengthened with the addition of Maximilian Barth, who took over the position of Head of Private Banking for Germany and Switzerland.

Outlook

Growth will remain a key topic for VP Bank Group again in 2018. We will therefore continue with the systematic improvement in the quality of our client care and build up experienced teams. Here again, our focus is on quality. We will not pursue growth at any cost, as new additions must first and foremost be a good fit with VP Bank’s culture. As part of the “Relationship Manager Hiring” project, we set a goal of hiring a total of 75 client advisors in the intermediaries and private banking segments, of which around one-half in Asia.

We will also take advantage of any market opportunities that arise to invest in growth through acquisitions. VP Bank still has a very solid equity position that enables it to take advantage of changes in the financial industry.

With the move to newer and larger offices in Zurich, Luxembourg and Singapore, we created the needed infrastructure for personal growth.

2018 is an anniversary year for our sites. VP Bank has been represented with a subsidiary in Zurich for 30 years and also been active in Luxembourg since 1988. VP Fund Solutions (Luxembourg) SA, our fund competency centre, celebrates its 20-year anniversary in 2018.

In the 2016 annual report we reported on VP Bank’s Asia strategy. We opened our office in Singapore in 2008 and are therefore celebrating our 10-year anniversary there in 2018. The Asia/Pacific region is one of our target markets, where we see extensive growth opportunities. VP Bank (Singapore) Ltd is a subsidiary of VP Bank Group, with a banking license and nearly 50 employees. Given the current legal structure of our Singapore entity, we would need to continuously increase our equity capital in order to meet our future growth targets. In 2017, therefore, we applied to convert its status from subsidiary to a branch. We also applied to broaden the license from merchant bank to wholesale bank. The bank targets to implement the new structure by July 2018.

Regulatory requirements will again keep us busy in 2018. The ever-increasing number of regulations leads to rising costs and narrower profit margins. We are responding to this trend through our efficiency enhancement programme as well as continued systematic efforts to control costs. We have created the right conditions thanks to skilled teams, active cooperation with the respective financial market participants and constant sharing of know-how.

In 2018 we will continue to implement our digitalisation strategy, which is already off to a good start. Under the “Next” programme, we are implementing a large number of digitalisation projects. They include modernising communications channels with our clients and expanding the range of online offerings. In the spring of 2018 we will present VP Bank’s new e-banking system.

In 2018 we also expect to be able to take advantage of VP Bank’s innovations and investments in advisory quality and new products initiated in 2017.

Overall, we are confident that we will be able to further strengthen the sustainable foundation for VP Bank Group’s growth. Thanks to our skilled and motivated employees, we are well prepared.

A word of thanks

The successes of 2017 once again confirm the relevance of our strategy. We are pleased to have accomplished so much together and see this as further incentive to continue down our path of growth, focus and culture in the future. We would like to thank our employees in particular for their energetic support and will continue to count on their committed contribution to our business success.

We also offer heartfelt thanks to our clients and shareholders for their continued loyalty to VP Bank.